The Wide Angle Who are the World's Consumers?

Transcription

1 Global Macro Global Markets Research 23 July 2012 The Wide Angle Who are the World's Consumers? Summary This is the first of a two-part series investigating long-term trends in global consumption. In this report, we have analyzed the changing profile of the world s consumer. We found that per capita incomes are witnessing two major trends a convergence in incomes between countries and an increase in inequality within countries. However, the increase in inequality in developed countries is a very long term trend that started in the 1970s. Moreover, rising incomes of populous but poor countries imply that income distribution for humanity as a whole has improved from globalization. Despite the hype over China s luxury goods boom, the US still dominates the world s rich. The big story is still about the shift of poor and aspiring Asian consumers into the middle class. Some projections suggest that Asia could account for two-thirds of the world s middle class by 2030, displacing not just the West but also other emerging regions. Aging is rapidly changing the profile of the average consumer but the shift is faster in emerging markets, particularly in East Asia and Europe. After falling for half a century, the effective retirement age is now rising in the West as older workers continue to work. At the same time, the pipeline of children enrolled in the primary education system is drying up in many countries. Single person households are now the largest category of consumer units in advanced countries as the traditional nuclear family has gone into decline, although we are also witnessing an unexpected revival in multi-generational households. Meanwhile, the nuclear family has become the dominant household structure in emerging markets like India. Periodical Author Sanjeev Sanyal Global Strategist (+65) sanjeev.sanyal@db.com Global Strategy All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 072/04/2012.

2 Introduction We live in a time of rapid economic and social change. Not surprisingly, this has important implications for the patterns of consumption we see around the globe. This is the first of a two-part series that investigates the new landscape of consumption that is emerging. In this report we will focus on the fast changing profile of the world s consumers including their geographical distribution, the structure of households and demographics. In the next report we will focus on how the consumption basket is evolving. Together, we hope that the reports will give the readers a better sense of the trajectory of 21st century consumer behavior. For the purposes of this report, we have defined the characteristics of a consumer in three frames of reference. The first is in terms of income and its distribution across countries and different income slabs. We are particularly interested in how purchasing power is shifting from advanced economies to emerging markets. The second is in terms of age profile. The decline in fertility rates and the increases in longevity are changing the age profile of consumers at a very rapid rate. We have also looked at how this is affecting the age of retirement as well the income cycle of aging populations. Finally, we have looked the characteristics of the household: how the average household has been affected by urbanization, the decline in the institution of marriage, education levels and so on. We are aware that defining the consumer in merely three frames of references runs the risk of oversimplification but we feel that it provides the optimal balance between detail and readability. Income Profile of the World s Consumers Over the last two decades, per capita incomes across the world have witnessed two broad mega-trends one between countries and one within countries. The first relates to the convergence of per capita incomes between richest and poorest countries. The United States was one of the best performing developed economies between 1990s and 2011 with real dollar per capita income rising by 32.8% during the period (calculated in US dollar terms but using 2005 prices 1 ). Most other advanced major economies, with the exception of the UK, showed only modest increases. Germany s per capita income actually fell in the early 1990s as it absorbed East Germany and only began rising again in 2000s. Japan saw real per capita incomes rise till the early 1990s but has witnessed stagnation since (the number being partly propped up by the fact that population growth has also stagnated). Middle-income countries too did not perform especially well if the whole period is taken into account. Brazil saw only a modest improvement in per capita income in the 1990s before enjoying acceleration in the 2000s. Russia experienced a severe decline in the 1990s as the economic framework of the Soviet Union dissolved. Although it enjoyed a recovery in the 2000s, the growth rate of per capita income would be low for the period as a whole. In contrast, real dollar income per capita has gone up sharply in the world s poorest countries. The number for China has gone up more than six times during this period. India s performance is less spectacular but its per capita income has gone up almost two-and-a half times. By 2011, at current prices and exchange rates, the per capita income for China and India stood at USD 5,351 and USD 1,525 respectively. This is still far below the American per capita income of USD 48,442 but China is now arguably becoming a middle-income country and India, although still very poor, is significantly better off than in This measure of per capita income does not correct for purchasing power parity. Instead it measures variations in real purchasing power per capita of consumers from different countries in the international market (proxied by the US). Page 2

3 Table 1: Per Capita GDP At 2005 prices and exchange rates USD At current prices and exchange rates USD Brazil 4,082 4,489 5,779 12, China 466 1,133 3,149 5, France 28,671 33,472 35,410 43, Germany 33,891 31,706 35,994 43, India ,097 1, Indonesia 821 1,102 1,674 3, Japan 30,968 34,003 36,057 46, Mexico NA 7,887 8,458 9, Russia NA 3,876 6,599 12, South Africa 5,023 4,684 5,901 8, South Korea 8,404 14,427 21,214 22, Spain NA 24,068 25,812 32, Turkey 4,908 6,014 8,200 10, United Kingdom 26,448 33,782 38,133 38, United States 32,157 39,752 42,733 48,442 Source: Haver, Deutsche Bank estimates Even as incomes were converging across countries, income distribution within many countries appears to have deteriorated. This has been the subject of numerous academic articles and newspaper columns. Inequality is often measured using the Gini coefficient where 0 stands for perfect income equality and 1 stands for perfect inequality (i.e. one person enjoys all the country s income). As shown in the table below, OECD estimates of income inequality suggest that income distribution has steadily deteriorated in most developed countries over the years. However, notice that this is not something that emerged in the 1990s but is a trend that started a generation ago. For the UK, for instance, the deterioration happened in the 1970s and 1980s. Some countries like Turkey even saw an improvement since the mid-1990s. A separate estimate by the US Census Bureau, using a different methodology, also shows how income distribution has been steadily deteriorating since 1968 long before globalization related factors came into play (see Figure 1). If anything, the US Gini coefficient has been roughly stable since Table 2: Gini Co-efficients for OECD Countries Mid 70s Mid 80s Around 1990 Mid 90s Around 2000 Mid 2000s Late 2000s France NA Germany NA Japan NA 0.30 NA South Korea NA NA NA NA NA Spain NA Turkey NA 0.43 NA 0.49 NA United Kingdom United States Source: OECD Page 3

4 Figure 1: Gini Coefficient for the United States in per cent Source: US Census Bureau Globalization has been commonly blamed for worsening income inequality in recent years but it appears that the deterioration is a very long-term trend that goes back to the 1970s. Meanwhile, income-levels between rich and poor countries have converged significantly. As illustrated in Table 3, for the first time since the Industrial Revolution, the incomes of the poorest countries is converging to that of the richest. China s per capita income adjusted for purchasing power parity, for example, stands today at 17% of the United State compared to 8% in 1990 and 5% in This means that income distribution for humanity as a whole has improved. We could not find a time-series estimate of the Gini co-efficient for the world as a whole but it must have improved dramatically since the 1990s given the population weights of countries like China and India. In other words, globalization has helped in reducing income inequality if judged from a global standpoint rather than from a national standpoint. This is very different from what most commentators lead us to believe. Table 3: GDP per Capita (PPP adjusted) as percent of US (est) Brazil NA NA 17% 21% 24% China 150% 48% 5% 8% 17% France 182% 98% 55% 78% 72% Germany 169% 84% 41% 69% 78% India 138% 42% 6% 6% 8% Indonesia NA NA NA 11% 10% Japan 125% 53% 20% 81% 72% Mexico 106% 60% 25% 26% 30% Russia 125% 55% 30% 30% 35% Spain 175% 85% 25% 53% 63% United Kingdom 179% 136% 72% 71% 75% United States 100% 100% 100% 100% 100% Source: The Milennial Perspective - Angus Madison, International Monetary Fund, Deutsche Bank Of course, despite the convergence in incomes, it remains the case that developed country consumers enjoy incomes far above those in countries like India or even China. However, the argument is often made, that some of the emerging markets have populations that are so large that they provide a large consumer base even if only a small proportion of their populations enjoys high income. In order to investigate this, we looked at data on the number of households per income slab across a range of countries (see Table 4). For purposes of analysis, we divided the households by disposable income slabs as follows: Poor (less than Page 4

5 USD5,000), Aspirants (USD5,000 to 15,000), Lower Middle Class (USD15,000 to 45,000), Upper Middle Class (USD45,000 to 15,000) and the Rich (more than 150,000). We used US dollars at 2011 prices and, in this case, did not adjust for purchasing power parity since we wanted to compare raw purchasing ability in the international market rather than the qualityof-life. Although there are some inconsistencies in the data, it provides a fascinating picture of how households around the world are distributed across the income spectrum. 2 Table 4: Households by Disposable Income Slabs in 2011 In USD Below 5,000 5,000 15,000 15,000 45,000 Number of households in thousands Poor Aspirants Lower Middle Class 45, ,000 Upper Middle Class Above 150,000 Brazil 5, , , , ,017.0 China 164, , , , ,588.8 France , , ,646.4 Germany , , , ,120.4 India 104, , , , Indonesia 30, , , Japan , , , ,646.5 Mexico 2, , , , Russia 5, , , , South Africa 5, , , South Korea , , , Spain , , Turkey , , , United Kingdom , , , ,215.7 United States 3, , , , ,226.5 Source: Euromonitor & DB Research; Note: The data for France has some discrepancies and is probably somewhat overstated. It was estimated that China has 1.6 million households that can be classified as Rich on our income based approach (an asset based approach may give different estimates). This is more than that for the United Kingdom and roughly in line with France. Indeed, China may be already ahead of France if one allows for certain discrepancies in the French data. The rapid emergence of this class in China is responsible for the sharp increase in demand for various luxury goods. Nevertheless, note that the United States still has more than ten times the number of households with disposable incomes over USD 150,000. Even if one combined all the major emerging markets, one would not come close to the US in this category. In other words, the US is still king if one is thinking about consumers in the USD 150,000+ range. The advanced economies also continue to dominate in the Upper Middle Class. As one goes down the income slabs, however, we see that different countries have a clustering of households as different levels. Brazil has a peak in the Lower Middle Class, China among the Aspirants and India among the Poor. This distribution has important implications for producers of consumer goods and investors. For instance, Brazil still has more households in the Lower-Middle Class bracket than India even though it has a much smaller population. Therefore, despite all the hype about luxury goods demand in China, if one wants to take really advantage of the sheer bulk of India and China, one still needs to look at the poorer households. Rich 2 Note that household size varies between countries and this affects the numbers. For instance, Chinese households are smaller than Indian households and consequently it has more households for a given population. Page 5

6 The above estimates relate to 2011 but, of course, these numbers are changing constantly. Given that emerging markets have a very large chunk of their population still in poverty, the future of global consumption demand will be strongly influenced by their transition into the middle class. It is not easy to forecast the evolution of the middle class in a globally consistent framework. There are problems with defining the middle class as it currently stands, not to mention with making long term projections of growth, income distribution, prices and exchange rates. Nevertheless, an OECD Working Paper by Homi Kharas does provide some guidance on the orders of magnitude 3. Kharas defines the global middle class as those households that have daily expenditures between USD10 and USD100 per person in purchasing power parity (this is somewhat different from the income based definition we have used earlier in this report). His estimates suggest that advanced countries still dominated the middle class as recently as 2009 with North America and Europe accounting for 18% and 36% of the world s middle class. Asia-Pacific including Japan accounted for 28%. The estimates of spending by the middle class follow similar patterns except that North America has a disproportionately large share of 26%. These estimates reinforce our own findings that advanced markets have dominated the middle class till now despite all the hype about China and India. However, Kharas projects also show how the balance of power will shift in the next two decades with Asia-Pacific accounting for 54% of the world middle class by 2020 and 66% by Indeed, these projections suggest that the rise of Asia s middle class is so rapid that it not only eats into the shares of Europe and North America but also those of other emerging regions. Thus, the share of Latin America falls from today s 10% to 6% in Middle class spending is also projected to witness a similar shift. In other words, the reordering of the world s consumer landscape is really about the rise of Asia rather than more generally of emerging markets. This is in line with the conclusions reached in an earlier report in The Wide Angle series (see Can Asian consumers replace the West?, 27th July 2011). Table 5: Projections of the Global Middle Class Millions Share Millions Share Millions Share North America % % 322 7% Europe % % % Central and South America % 251 8% 313 6% Asia Pacific % 1,740 54% 3,228 66% Sub-Saharan Africa 32 2% 57 2% 107 2% Middle East and North Africa 105 6% 165 5% 234 5% World 1, % 3, % 4, % Source: The Emerging Middle Class in Developing Countries, Homi Kharas, OECD Working Paper No 285, The Emerging Middle Class in Developing Countries, Homi Kharas, OECD Working Paper No 285, 2010 Page 6

7 Table 6: Projections of Spending by the Global Middle Class prices, PPP USDbn Share USDbn Share USDbn Share North America 5,602 26% 5,863 17% 5,837 10% Europe 8,138 38% 10,301 29% 11,337 20% Central and South America 1,534 7% 2,315 7% 3,117 6% Asia Pacific 4,952 23% 14,798 42% 32,596 59% Sub-Saharan Africa 256 1% 448 1% 827 1% Middle East and North Africa 796 4% 1,321 4% 1,966 4% World 21, % 35, % 55, % Source: The Emerging Middle Class in Developing Countries, Homi Kharas, OECD Working Paper No 285, Note: the projections are in 2005 PPP dollars. Demographic Profile of the World s Consumers One of the big changes that we are witnessing in the consumption landscape is the rapid increase in the age profile of the average consumer. This is not a new topic of discussion but the pace and scale of this transformation is still not fully appreciated, especially in the case of emerging economies. Moreover, it is not a linear process but one where a changing age structure is causing behavioral changes that, in turn, feeds back to the relative income streams of different age groups. Over the last two decades, the median age of the United States and the United Kingdom have drifted up from 32.9 and 35.8 years respectively in 1990 to 36.9 and 39.8 in They are expected to rise to 39.1 and 41.3 by 2030 according to the UN Population Division. Note that the US and UK have aged relatively slowly compared to many other advanced countries. Japan, for instance, had a median age of 37.4 in 1990, not far from the US and UK, but will be much older at 51.4years in Nevertheless, the swing is even faster in other countries of East Asia. China has gone from a median age of just 25.1 in 1990 to 34.5 in 2010 but will be older than the US and UK by 2030 with a median age of 42.5years. Other emerging economies may be ageing more slowly than East Asia but many of them will be catching up with the West. As can be seen in the Table 7, Brazil and Russia will have a median age of 37.4 and 43.3years by Of the major economies, India is an exception in that it will still be youthful at 31.5 in Table 7: Median age of the Total Population In years Brazil China France Germany India Indonesia Japan Korea Russia United Kingdom United States Source: UN World Population Prospects: The 2010 Revision The process of aging implies that the proportion of working-age adults (20-64years) will decline in most major economies by As shown in Table 8, working age consumers will account for less than half of total population in Japan and Germany by that time. Emerging Page 7

8 countries like China and Russia will also witness very sharp declines in this category. India is again the exception in that it will see a significant increase. In Brazil, the share rises moderately although the sharply falling share of children in the total population suggests that the working age population will decline in the 2030s. These changes in the demographic landscape are even starker if one looks at the numbers at the two extremes of the age structure rather than percentage shares. For instance, the number of children in the age group 0-2 years has already declined by 15.8% in Japan since 1990 but the declines are almost catastrophic in China and South Korea at -43.3% and -32.2% respectively. A producer of baby-milk or diapers will need to take this into serious account even as the education system in these countries will have to prepare for a virtual collapse in the pipeline. In contrast, the number of infants has increased by 2.9% in the UK and by 3.7% in the US during the same period. At the other end of the scale, the number of persons older than 60years of age has jumped up since 1990 by 133% and 119% in South Korea and China respectively. Yet again, it is clear that North-East Asia is in the midst of a demographic shift that will radically change the profile of future consumers in the region. Table 8: Population Distribution by Age Percent of total population Brazil 0-19 yrs yrs 65+ yrs % 58.2% 8.4% % 59.9% 16.2% China % 63.6% 9.4% % 61.6% 18.7% Germany % 58.1% 24.2% % 49.6% 33.3% India % 54.3% 5.6% % 59.0% 9.4% Japan % 55.7% 27.3% % 46.8% 38.1% Russia % 64.5% 15.3% % 56.8% 22.0% United Kingdom % 57.1% 20.3% % 52.2% 25.8% United States % 57.7% 16.2% % 51.9% 23.9% Source: UN Population Prospects Page 8

9 Table 9: Population by Extreme Age Brackets In millions Change (%) Brazil 0-2 years (1995) years China 0-2 years years France 0-2 years years Germany 0-2 years years India 0-2 years years Indonesia 0-2 years years Japan 0-2 years years Korea 0-2 years years Russia 0-2 years years United Kingdom 0-2 years years United States 0-2 years years Source: Euromonitor How are societies changing behavior to cope with this rapid aging? In particular, are people taking advantage of greater longevity to work longer? The evidence suggests that, to contrary, the opposite had happened till Till the mid-20th century, most people worked as long as they were physically able to do so. Only civil servants and a few others had the luxury of living on a pension. This changed in the late 20th century and, as can be seen in Tables 10 and 11, the effective retirement age declined over the decades. The exceptions have been Japan, where the effective retirement age remained high, and South Korea where it rose. Nevertheless, OECD data suggests that the trend is reversing in a few advanced countries such as the United States and United Kingdom. For instance, the average American male retired at 65.5 years of age and the average female at 64.8 years in 2009 compared to 64.7 years and 63.5 years respectively in Germany and France also saw a small increase between 2000 and What is interesting is that older workers seem increasingly willing to go back to university to gain new skills as well as to take up junior roles and even Page 9

10 internships 4. This flexibility, combined with their previous life experiences, could make the older worker formidably competitive in job market. Younger workers need to pull up their socks! Table 10: Effective and Official Retirement Ages in OECD Countries (Men) Effective retirement age for men Official retirement age for men France Germany NA NA NA Japan Mexico NA South Korea Spain Turkey United Kingdom United States Source: OECD Table 11: Effective and Official Retirement Ages in OECD Countries (Women) Effective retirement age for women Official retirement age for women France Germany NA NA NA Japan Mexico NA South Korea Spain Turkey United Kingdom United States Source: OECD We next looked at whether or not aging is having an impact on the relative earnings of different age groups. In general, we found that lifecycle earnings of the average worker peaked in the thirties or early forties in emerging markets whereas it peaked in the forties or early fifties in most developed countries. This probably reflects the fact that a larger share of an emerging market s workforce derives income from manual labour. So, has the age distribution of income begun to change? Our findings can be summarized as follows. First, we found the age of peak earnings has not drifted significantly in any country over the last two decades. This came as a surprise given the big changes in demographics and levels of development experienced by countries like China. Second, the relative incomes earned by older workers have risen in the US and UK, probably reflecting the fact they are now retiring later. For instance, an American worker in the 60-64years age bracket earned 83% of peak earnings in 1990 but now earns 89%. The Japanese retire even later and are able to take home over 70% of peak earnings even after they cross 65years of age. 4 The 50-year old intern: Boomers go back to the Bottom, Maura Kelly, Fiscal Times, 29th March 2012 Page 10

11 In an earlier report in the Wide Angle series, we had argued that it is inevitable that it will soon be routine to find people working into their seventies (see The End of Population Growth, 13th May 2011). This means that the relative incomes of those in older age brackets will rise (although it is still unclear how much the peak age will shift). Again, this has important implications for investors as well as producers of consumer goods. Table 12: China Incomes by Age Cohorts Average annual income in RMB Age of peak income Aged ,107 30,435 Older workers' income Aged ,648 23,806 Aged 65+ 1,341 19,043 Old age income as % of peak income Aged % 78.2% Aged % 62.6% Source: Euromonitor, Deutsche Bank estimates Table 13: Germany - Incomes by Age Cohorts Average annual income in EUR Age of peak income Aged ,503 31,192 Older workers' income Aged ,932 28,921 Aged ,265 26,268 Old age income as % of peak income Aged % 92.7% Aged % 84.2% Source: Euromonitor, Deutsche Bank estimates Table 14: India - Incomes by Age Cohorts Average annual income in INR Age of peak income Aged , ,186 Older workers' income Aged ,105 82,868 Aged 65+ 6,534 65,874 Old age income as % of peak income Aged % 73.9% Aged % 58.7% Source: Euromonitor, Deutsche Bank estimates Table 15: Japan - Incomes by Age Cohorts Average annual income in JPY Age of peak income Aged ,507,665 4,457,009 Older workers' income Aged ,840,832 3,802,948 Aged 65+ 3,291,499 3,204,202 Old age income as % of peak income Aged % 85.3% Aged % 71.9% Source: Euromonitor, Deutsche Bank estimates Table 16: United Kingdom - Incomes by Age Cohorts Average annual income in GBP Age of peak income Aged ,007 32,972 Older workers' income Aged ,745 29,219 Aged 65+ 9,755 25,451 Old age income as % of peak income Aged % 88.6% Aged % 77.2% Source: Euromonitor, Deutsche Bank estimates Page 11

12 Table 17: United States - Incomes by Age Cohorts Average annual income in USD Age of peak income Aged ,688 78,343 Older workers' income Aged ,174 70,408 Aged ,261 45,708 Old age income as % of peak income Aged % 89.9% Source: Euromonitor, Deutsche Bank estimates The Changing Household Aged % 58.3% Even as demographics and per capita incomes have changed, the social landscape inhabited by the consumer has also changed radically. In this section we have restricted ourselves to only three characteristics urbanization, household size and education. Not surprisingly, the bulk of consumers in advanced countries were urban by 1990 but we found that this was also true of major emerging markets in Latin America and Eastern Europe. The level of urbanization is now even higher. However, it is China that experienced the biggest shift. In 1990, China was still overwhelmingly rural with only 26.4% of population living in urban areas. Today it is an urban majority country. India too urbanized over the last two decades but at a much slower pace and consequently still remains two-thirds rural. The urbanization rate will probably rise a bit more in advanced countries as well as Eastern Europe and Latin America, but the shift will be minor. China s urbanization still has some distance to run. However, it is India that will see the biggest shift looking ahead and we expect that it will an urban majority country by the late 2030s (see discussion in The Future of Our Cities, The Wide Angle series, published 11th August 2011). Table 18: Urbanisation Rates In per cent of total population Brazil China France Germany India Indonesia Japan Mexico Russia South Africa South Korea Spain Turkey United Kingdom United States Source: UN Urbanisation Prospects, DB estimates The structure of households has been transformed as the institution of marriage has gone into decline and the number of children has fallen. Our mental image of the average consuming unit, the household, is still dominated by the standard nuclear family: mum, dad and a couple of kids. This kind of household, however, now accounts for only a small fraction of actual household in many developed countries. In the United States, for example, couples with children account for only 21.6% of households while couples without children account for another 27.2%. The single largest category is now that of single person with a 27.6% Page 12

13 share that is steadily rising. The single person household is even more widespread in other developed countries accounting for 34.3% in UK, 31.5% in Japan and 38.7% of households in Germany. The traditional nuclear family (with children) accounts for barely 18.5% of households in the UK. In other words, the largest consuming category in the developed world is now the lone individual. Figure 2: Households by Type in 2011 Brazil Others Single China Single 6% Single person parent 10% Couple Others without 25% family children 20% 15% Couple with children 49% Single parent family 6% person 7% Couple without children 13% Couple with children 49% India Single person 3% Others 24% Couple without children 12% Single parent family 9% Couple with children 52% Germany Others 2% Single parent family 5% Single person 39% Couple with children 22% Couple without children 32% United Kingdom Others 10% Single parent family 8% Source: Euromonitor Couple with children 19% Single person 34% Couple without children 29% United States Others 14% Single parent family 10% Single person 27% Couple with children 22% Couple without children 27% The decline of the nuclear family is often blamed on increases in divorce rates. This is indeed true for many countries in the last two decades (see Figure 3) but it is not the full story since divorce rates have stabilized or have even fallen in other instances. An equally important factor is that people are simply not getting married in the first place. As shown in Figure 4, the number of marriages per 1,000 inhabitants has fallen sharply since Even when people are getting married, they are delaying it by several years. The average age for British men getting married for the first time has gone up from 26 years in 1990 to 32 years in That for British women has similarly jumped from 24 years to 30 years over the same period. 5 World Consumer Lifestyles Databook 2012, Euromoniter, 11th Edition. Page 13

14 Nevertheless, the story is not all about one-way splintering towards atomistic individual consumers. In recent years we have also witnessed a revival of multigenerational families in the West. These households consist of adults from different generations living together. Such households were common across the world till the twentieth century but were steadily replaced by the nuclear family during the course of industrialization. However, we are now witnessing increased instances of grown children moving back with their parents either to save costs or to look after an ailing parent. Many of this group never left home but in many cases they are moving back after having stayed away for several years for work or college. Therefore, they have been dubbed the Boomerang Generation. According to Pew Research, the number of multigenerational households now account for 16% of US households compared to 12% a generation ago. Around 21.6% of adults in the 25-34years cohort live with their parents or relatives and there are signs that the phenomenon is steadily becoming common 6. Britain too is witnessing a similar revival in the multigenerational family. Some commentators see this as a temporary blip caused by the economic cycle. However, in our view, there is no reason why the nuclear family should be considered a normal endstate and we may be witnessing the longer-term evolution where extended families again become an important part of the social structure. Indeed, we may already be witnessing the impact of this shift on consumer preferences with 47% of British adults on a survey by Age UK saying that they were going on holiday with their parents this year 7! Figure 3: Divorce Rates (per thousand inhabitants) Brazil China France Germany Indonesia Japan Mexico Russia South Korea Spain Turkey United Kingdom United States Source: Euromonitor Figure 4: Marriage Rates (per thousand inhabitants) Brazil China France Germany Indonesia Japan Mexico Russia South Korea Spain Turkey United Kingdom United States Source: Euromonitor 6 The Boomerang Generation: Feeling OK about living with Mom and Dad, Kim Parker, Pew Social & Demographic Trends, Page 14

15 Figure 5: U.S. Population Living in Multi-Generational Family Households, Source: PEW, The Return of the Multi-Generational Family Household. March 2010 Figure 6: Share of U.S. Population Living in Multi-Generational Family Households, % 20% 10% 0% Source: PEW, The Return of the Multi-Generational Family Household. March 2010 Meanwhile, trends in different emerging markets are very different. Eastern Europe has witnessed a transition away from the traditional nuclear family that is comparable to that in developed countries. Single individuals account for 24.8% of households in Russia and 33.4% in Ukraine. At the other end of the scale, single individuals account for merely 3% of households in India, 10.9% in Indonesia and 6.8% in China. However, these Asian countries are also going through big social changes. The mutigenerational extended family was very common in India till recently but urbanization and modernization are changing the social structure and have made the nuclear family the norm. Couples with children account for 52% of households in India now while couples without children for another 12%. The traditional extended family accounts for less than a quarter of households and its share is falling fast. In other word, our mental image of a nuclear family unit needs to shift from American suburbia to the rapidly expanding cities of India. By the same token, our mental image of the multigenerational extended family (also called joint-family) should now include those in the West. The educational background of consumers is also shifting and, in virtually all countries, people are becoming more educated. The number of students in higher education has gone up by 47.4% in the US and by 104.7% in the UK since 1990 but this pales in comparison to the 739% expansion witnessed in China during this period. However, demographics is beginning to impact this as well. Japan saw the number of students in enrolled in higher education rise from 2.7mn in 1990 to 4.1mn in 2006, but enrollment then fell to 3.7mn by Page 15

16 The impact of demographics is even clearer if one looks at primary and secondary education. The number of children in primary education in Japan is now down 26% since However, other East Asians are also experiencing similar trends with the number of children in primary education down 18% for China and a startling 33.2% for South Korea. Germany too has seen a 20% decline in the number of primary school enrollments since Given this pipeline, it is inevitable that the enrollment in higher education will see the same swing as Japan in about a decade s time. The student pipeline for the US, in contrast, is much more stable but Eastern Europe looks similar to East Asia. Yet again, India is at the other end of the scale with a 59% increase in primary enrollment since 1990, 98% in secondary enrollment and 299% in higher education. While this is not a comment on the quality of education but merely on the numerical pipeline, this will influence the human capital characteristics of the future consumers and workers. Table 19: Primary School Students In thousands Growth ( ) Brazil 12, , , % China 122, , , % France 4, , , % Germany NA 3, , %* India 96, , , % Indonesia 29, , , % Japan 9, , , % Mexico 14, , , % Russia NA 5, , %* South Africa 6, , , % South Korea 4, , , % Spain 3, , , % Turkey 6, , , % United Kingdom 4, , , % United States 22, , , % Source: Euromonitor (*) Growth has been calculated based on 1995 instead of 1990 due to non availability of figures for Table 20: Higher Education Students In thousands Growth ( ) Brazil 1,540 4,572 6, % China 3,925 20,601 32, % France 1,587 2,187 2, % Germany NA 2,269 2, % India 4,780 11,777 19, % Indonesia 1,516 3,660 5, % Japan 2,683 4,038 3, % Mexico 1,314 2,385 2, % Russia NA 9,003 9, % South Africa % South Korea 1,630 3,210 3, % Spain 1,166 1,809 1, % Turkey 686 2,106 3, % United Kingdom 1,178 2,288 2, % United States 13,538 17,272 19, % Source: Euromonitor (*) Growth has been calculated based on 1995 instead of 1990 due to non availability of figures for Page 16

17 Conclusion We live at a time when the social and economic profile of the average consumer is undergoing a big shift. Our analysis found a number of important changes that both investors and companies need to take into account. First, per capita incomes are witnessing two major trends the convergence of incomes between the richest and poorest countries, and the increase in inequality within countries. We found, however, that the increase in Gini coefficients in advanced countries is a very long term trend that started in the seventies, long before globalization took its current form. Moreover, the rising incomes of populous poor countries like China and India imply that income distribution has improved for humanity as a whole. Since globalization, by definition, should be judged at a global rather than national level, it should be taken to have been a success in terms of lowering income inequality. To propose protectionist policies on grounds of rising inequality, therefore, is factually and morally wrong. Second, our study of households in different income brackets found that the US still dominates the category of rich consumers. The category may have seen rapid growth in China but the big story is still about the shift of poor and aspiring consumers into the middle class in China, India and other Asian countries. This could be such a big phenomenon according to some projections that two-thirds of the world s middle class could be based in Asia by In other words, Asian consumers are not just replacing the West but also eating into the shares of other emerging regions. Third, a fall in birth rates and a rise in longevity is increasingly the age profile of the average consumer. While advanced countries have been experiencing this shift for some time, many people may not have realized that the transition has been much quicker in emerging markets, especially those in East Asia and Europe. We also found that societies are adapting to aging by extending the retirement age. The effective retirement age fell in the twentieth century but this trend is now beginning to reverse. Thus, in the future, the older consumer may no longer be a retiree living from a pension but an active worker who is willing to enhance his/her employability by returning to education or even accepting more junior roles. In the US, for instance, incomes in the 60-64year age group were able to earn 89% of peak income in 2009 compared to 83% in Fourth, the structure of families and households has undergone a transformation across the world. The decline in the institution of marriage in developed countries has meant that the largest consumer category is the single individual household. One person households now account for 38% of consuming units in Germany and 28% in the US. At the same time, emerging markets like India have seen both declines in household size combined with the nuclearisation of the family structure. Thus, our mental image of the average nuclear family needs to shift from American suburbia to the rapidly expanding cities of India. Nonetheless, the advanced countries are not only seeing a trend towards ever more atomized consumers. There has also been a steady revival in the multi-generational extended family. So, we also need to change our mental image of the average multi-generational household. Finally, we found that the world has experienced a big expansion in higher education enrollments over the last two decades. While this foretells a big increase in the number of well-educated consumers and workers, we found that the future pipeline of human capital will be strongly impacted by demographics. China has already experienced an 18% decline in primary school enrollments since 1990 while South Korea has seen a 33% fall. As this cohort makes its way up the age structure, it will ultimately impact the supply of well-educated workers and consumers in a little over a decade s time. Japan has already begun to experience a downturn in college enrollments. At the other end of the scale, India has been witnessing a sharp increase in primary enrollment and could potentially benefit from this in future. The UK and the US have much smoother profiles than either extreme. Page 17

18 Appendix A: Gross Income by Age in Current Prices Table 21: Brazil Aged (BRL) 2,211 4,544 4,960 5,377 5,878 6,483 7,173 7,987 9,158 10,011 Aged (BRL) 4,642 9,508 10,365 11,205 12,250 13,510 14,948 16,504 18,664 20,422 Aged (BRL) 5,892 12,042 13,114 14,154 15,473 17,065 18,882 20,709 23,246 25,408 Aged (BRL) 6,446 13,154 14,315 15,434 16,872 18,608 20,589 22,467 25,116 27,395 Aged (BRL) 6,677 13,627 14,830 15,989 17,479 19,277 21,330 23,275 26,019 28,380 Aged (BRL) 6,669 13,600 14,794 15,942 17,428 19,221 21,267 23,136 25,821 28,206 Aged (BRL) 6,477 13,198 14,351 15,456 16,897 18,635 20,619 22,363 24,917 27,259 Aged (BRL) 6,127 12,484 13,575 14,621 15,983 17,627 19,504 21,154 23,569 25,785 Aged (BRL) 5,731 11,678 12,698 13,678 14,953 16,491 18,247 19,785 22,080 24,235 Aged (BRL) 5,276 10,752 11,692 12,596 13,770 15,186 16,803 18,215 20,361 22,421 Aged 65+ (BRL) 4,497 9,107 9,898 10,656 11,640 12,826 14,179 15,358 17,157 18, to peak 88.2% 88.4% 88.4% 88.5% 88.5% 88.5% 88.5% 89.0% 89.3% 89.5% to peak 79.0% 78.9% 78.8% 78.8% 78.8% 78.8% 78.8% 78.3% 78.3% 79.0% 65+ to peak 67.4% 66.8% 66.7% 66.6% 66.6% 66.5% 66.5% 66.0% 65.9% 66.5% Source: Euromonitor & DB Research Table 22: China Aged (RMB) 689 1,812 3,159 3,918 4,660 5,470 6,254 7,490 8,181 8,919 10,013 Aged (RMB) 1,635 4,297 7,481 9,272 11,019 12,933 14,788 17,710 19,220 20,942 23,820 Aged (RMB) 2,014 5,293 9,211 11,413 13,558 15,913 18,194 21,790 23,607 25,677 29,106 Aged (RMB) 2,107 5,536 9,633 11,936 14,180 16,643 19,029 22,790 24,687 26,852 30,435 Aged (RMB) 2,059 5,410 9,413 11,663 13,853 16,259 18,591 22,265 24,113 26,209 29,701 Aged (RMB) 1,953 5,134 8,933 11,070 13,151 15,435 17,648 21,136 22,909 24,908 28,236 Aged (RMB) 1,872 4,920 8,561 10,607 12,599 14,788 16,909 20,250 21,931 23,844 27,022 Aged (RMB) 1,832 4,815 8,378 10,381 12,331 14,473 16,549 19,819 21,465 23,342 26,454 Aged (RMB) 1,772 4,657 8,105 10,044 11,933 14,006 16,015 19,180 20,803 22,627 25,639 Aged (RMB) 1,648 4,332 7,538 9,340 11,095 13,023 14,890 17,833 19,311 21,016 23,806 Aged 65+ (RMB) 1,341 3,519 6,094 7,531 8,922 10,471 11,954 14,290 15,482 16,804 19, to peak 95.6% 95.6% 95.6% 95.6% 95.6% 95.6% 95.6% 95.6% 95.6% 95.6% 95.6% to peak 78.2% 78.3% 78.3% 78.3% 78.2% 78.2% 78.2% 78.2% 78.2% 78.3% 78.2% 65+ to peak 63.6% 63.6% 63.3% 63.1% 62.9% 62.9% 62.8% 62.7% 62.7% 62.6% 62.6% Source: Euromonitor & DB Research Table 23: France Aged (EUR) 11,705 13,485 17,159 17,738 18,249 19,398 20,050 20,491 20,387 20,663 21,125 Aged (EUR) 17,478 20,066 25,052 25,816 26,480 27,754 28,371 28,995 28,884 29,212 29,846 Aged (EUR) 20,925 23,979 29,631 30,485 31,225 32,429 32,982 33,708 33,622 34,000 34,718 Aged (EUR) 22,690 26,007 32,186 33,134 33,955 34,994 36,047 36,841 36,734 37,148 37,942 Aged (EUR) 23,541 27,009 33,609 34,636 35,533 36,710 38,011 38,848 38,771 39,250 40,124 Aged (EUR) 24,480 28,100 35,058 36,148 37,100 38,386 39,831 40,709 40,642 41,134 42,032 Aged (EUR) 25,136 28,864 36,081 37,216 38,209 39,576 41,130 42,036 41,978 42,496 43,432 Aged (EUR) 25,204 28,971 36,422 37,609 38,654 40,094 41,958 42,882 42,831 43,389 44,356 Aged (EUR) 24,860 28,566 35,845 37,000 38,020 39,399 41,153 42,060 42,005 42,602 43,581 Aged (EUR) 23,800 27,353 34,363 35,479 36,468 37,743 39,560 40,432 40,368 40,969 41,906 Aged 65+ (EUR) 22,081 25,411 31,751 32,738 33,612 34,764 36,191 36,958 36,862 37,509 38,439 Source: Euromonitor & DB Research Page 18

19 Table 24: Germany Aged (EUR) 8,837 10,780 12,144 12,230 12,456 12,844 13,304 13,842 13,588 14,223 14,490 Aged (EUR) 14,376 17,531 19,722 19,851 20,195 20,823 21,570 22,443 21,946 22,843 23,357 Aged (EUR) 17,363 21,169 23,787 23,935 24,323 25,079 25,979 27,029 26,393 27,247 28,017 Aged (EUR) 18,737 22,838 25,633 25,784 26,174 26,988 27,956 29,087 28,354 29,047 30,051 Aged (EUR) 19,231 23,438 26,292 26,444 26,829 27,663 28,656 29,814 29,050 29,628 30,775 Aged (EUR) 19,503 23,769 26,658 26,812 27,198 28,043 29,049 30,224 29,444 29,989 31,192 Aged (EUR) 19,447 23,701 26,584 26,738 27,124 27,967 28,970 30,142 29,370 29,924 31,114 Aged (EUR) 19,076 23,249 26,082 26,235 26,617 27,444 28,429 29,578 28,834 29,397 30,549 Aged (EUR) 18,670 22,755 25,531 25,683 26,059 26,870 27,833 28,959 28,246 28,805 29,940 Aged (EUR) 17,932 21,859 24,542 24,695 25,068 25,848 26,775 27,858 27,236 27,817 28,921 Aged 65+ (EUR) 16,265 19,854 22,312 22,469 22,817 23,529 24,370 25,335 24,773 25,263 26, to peak 89.0% 89.1% 89.2% 89.3% 89.4% 89.4% 89.4% 89.4% 89.6% 90.9% 89.8% to peak 91.9% 92.0% 92.1% 92.1% 92.2% 92.2% 92.2% 92.2% 92.5% 92.8% 92.7% 65+ to peak 83.4% 83.5% 83.7% 83.8% 83.9% 83.9% 83.9% 83.8% 84.1% 84.2% 84.2% Source: Euromonitor& DB Research Table 25: India Aged (INR) 4,075 7,903 15,734 17,156 18,902 21,314 23,599 27,535 30,890 36,204 41,678 Aged (INR) 8,329 16,154 32,158 35,062 38,625 43,554 48,224 56,268 63,095 73,912 85,053 Aged (INR) 9,969 19,334 38,487 41,963 46,227 52,126 57,715 67,342 75,512 88, ,782 Aged (INR) 10,744 20,838 41,481 45,227 49,822 56,180 62,204 72,579 81,384 95, ,692 Aged (INR) 10,988 21,310 42,421 46,252 50,952 57,454 63,615 74,226 83,231 97, ,186 Aged (INR) 10,744 20,838 41,481 45,226 49,822 56,180 62,204 72,579 81,385 95, ,696 Aged (INR) 10,224 19,828 39,471 43,035 47,408 53,458 59,190 69,063 77,442 90, ,382 Aged (INR) 9,659 18,733 37,291 40,658 44,788 50,504 55,919 65,247 73,157 85,694 98,603 Aged (INR) 8,952 17,362 34,557 37,676 41,501 46,797 51,815 60,458 67,772 79,359 91,281 Aged (INR) 8,105 15,719 31,296 34,125 37,596 42,394 46,939 54,769 61,444 72,004 82,868 Aged 65+ (INR) 6,534 12,668 25,133 27,381 30,135 33,943 37,536 43,740 48,981 57,307 65, to peak 90.7% 90.7% 90.7% 90.7% 90.7% 90.7% 90.7% 90.7% 90.7% 90.7% 90.7% to peak 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.9% 73.9% 65+ to peak 59.5% 59.4% 59.2% 59.2% 59.1% 59.1% 59.0% 58.9% 58.8% 58.8% 58.7% Source: Euromonitor & DB Research Table 26: Japan Aged (JPY '000s) 1,758 1,931 1,777 1,770 1,780 1,804 1,813 1,813 1,777 1,803 1,784 Aged (JPY '000s) 3,362 3,692 3,396 3,382 3,400 3,446 3,462 3,462 3,392 3,430 3,390 Aged (JPY '000s) 4,005 4,397 4,042 4,024 4,043 4,098 4,117 4,117 4,028 4,058 4,010 Aged (JPY '000s) 4,314 4,735 4,351 4,332 4,350 4,408 4,429 4,429 4,331 4,348 4,294 Aged (JPY '000s) 4,454 4,889 4,491 4,471 4,488 4,549 4,570 4,570 4,468 4,475 4,422 Aged (JPY '000s) 4,508 4,948 4,543 4,522 4,538 4,599 4,621 4,620 4,514 4,509 4,457 Aged (JPY '000s) 4,509 4,949 4,544 4,522 4,538 4,599 4,621 4,620 4,514 4,502 4,452 Aged (JPY '000s) 4,353 4,777 4,386 4,365 4,380 4,438 4,459 4,459 4,357 4,342 4,299 Aged (JPY '000s) 4,145 4,550 4,177 4,158 4,172 4,228 4,248 4,247 4,153 4,139 4,104 Aged (JPY '000s) 3,841 4,216 3,870 3,852 3,865 3,917 3,936 3,935 3,847 3,834 3,803 Aged 65+ (JPY '000s) 3,291 3,614 3,295 3,274 3,281 3,322 3,335 3,332 3,257 3,239 3, to peak 88.8% 88.9% 89.0% 89.0% 89.1% 89.1% 89.1% 89.1% 89.2% 90.0% 90.0% to peak 85.2% 85.2% 85.2% 85.2% 85.2% 85.2% 85.2% 85.2% 85.2% 85.0% 85.3% 65+ to peak 73.0% 73.1% 72.5% 72.4% 72.3% 72.2% 72.2% 72.1% 72.1% 71.8% 71.9% Source: Euromonitor & DB Research Page 19

20 Table 27: Russia Aged (RUB) 4,781 40,295 50,533 61,783 76,129 94, , , , ,785 Aged (RUB) 8,682 73,113 91, , , , , , , ,829 Aged (RUB) 10,269 86, , , , , , , , ,365 Aged (RUB) 11,348 95, , , , , , , , ,697 Aged (RUB) 11,225 94, , , , , , , , ,908 Aged (RUB) 10,835 91, , , , , , , , ,520 Aged (RUB) 10,222 86, , , , , , , , ,107 Aged (RUB) 9,569 80, , , , , , , , ,284 Aged (RUB) 9,090 76,699 96, , , , , , , ,943 Aged (RUB) 8,648 72,977 91, , , , , , , ,823 Aged 65+ (RUB) 8,029 67,641 84, , , , , , , , to peak 90.5% 90.5% 90.4% 90.4% 90.4% 90.4% 90.4% 90.3% 90.3% 90.4% to peak 76.2% 76.4% 76.4% 76.5% 76.5% 76.5% 76.5% 77.0% 77.5% 77.4% 65+ to peak 70.8% 70.8% 70.9% 71.0% 70.9% 70.9% 70.8% 71.1% 71.3% 71.2% Source: Euromonitor & DB Research Table 28: United Kingdom Aged (GBP) 4,757 6,334 9,211 9,589 10,090 10,520 10,673 11,143 11,427 11,628 11,952 Aged (GBP) 8,582 11,412 16,472 17,101 17,954 18,627 18,970 19,676 19,891 20,302 20,854 Aged (GBP) 11,111 14,762 21,218 21,988 23,053 23,871 24,347 25,143 25,171 25,752 26,426 Aged (GBP) 12,598 16,730 23,990 24,829 26,008 26,932 27,486 28,280 28,104 28,817 29,552 Aged (GBP) 13,492 17,915 25,670 26,556 27,813 28,789 29,405 30,219 29,939 30,778 31,570 Aged (GBP) 13,908 18,466 26,462 27,372 28,667 29,678 30,330 31,157 30,822 31,714 32,534 Aged (GBP) 14,007 18,603 26,697 27,625 28,942 29,985 30,664 31,520 31,200 32,123 32,972 Aged (GBP) 13,482 17,917 25,797 26,715 28,013 29,070 29,761 30,645 30,400 31,322 32,184 Aged (GBP) 12,545 16,683 24,107 24,991 26,233 27,262 27,932 28,838 28,701 29,614 30,483 Aged (GBP) 11,745 15,638 22,742 23,610 24,818 25,889 26,591 27,527 27,461 28,361 29,219 Aged 65+ (GBP) 9,755 12,976 19,025 19,813 20,893 21,930 22,599 23,534 23,649 24,565 25, to peak 79.3% 79.4% 79.5% 79.6% 79.7% 79.6% 79.4% 79.8% 80.7% 80.2% 80.1% to peak 83.9% 84.1% 85.2% 85.5% 85.8% 86.3% 86.7% 87.3% 88.0% 88.3% 88.6% 65+ to peak 69.6% 69.8% 71.3% 71.7% 72.2% 73.1% 73.7% 74.7% 75.8% 76.5% 77.2% Source: Euromonitor & DB Research Page 20

21 Table 29: United States Aged (USD) 6,316 7,385 9,985 10,468 11,065 11,769 12,396 12,846 12,240 12,390 12,980 Aged (USD) 16,624 19,387 25,810 27,016 28,529 30,039 31,264 32,086 31,141 31,669 32,438 Aged (USD) 25,367 29,628 39,739 41,672 44,154 46,734 48,627 49,926 48,831 50,500 52,304 Aged (USD) 30,735 35,919 48,334 50,720 53,783 57,032 59,408 61,114 59,791 61,935 64,430 Aged (USD) 34,487 40,290 54,121 56,769 60,177 63,752 66,331 68,222 66,677 69,098 71,681 Aged (USD) 36,659 42,812 57,398 60,183 63,748 67,477 70,144 72,118 70,441 72,724 75,540 Aged (USD) 38,000 44,357 59,321 62,165 65,787 69,560 72,234 74,201 72,408 74,434 77,451 Aged (USD) 38,688 45,157 60,371 63,268 66,938 70,708 73,481 75,518 73,719 75,582 78,343 Aged (USD) 36,855 43,089 58,123 61,034 64,728 68,667 71,669 73,922 72,379 74,626 77,729 Aged (USD) 32,174 37,682 51,322 53,973 57,349 61,160 64,174 66,532 64,837 67,222 70,408 Aged 65+ (USD) 21,261 24,601 32,910 34,616 36,770 39,236 41,241 42,908 41,936 43,565 45, to peak 65.6% 65.6% 65.8% 65.9% 66.0% 66.1% 66.2% 66.1% 66.2% 66.8% 66.8% to peak 83.2% 83.4% 85.0% 85.3% 85.7% 86.5% 87.3% 88.1% 88.0% 88.9% 89.9% 65+ to peak 55.0% 54.5% 54.5% 54.7% 54.9% 55.5% 56.1% 56.8% 56.9% 57.6% 58.3% Source: Euromonitor & DB Research Page 21

22 The Wide Angle Series Page 22